Rusty Corporation purchased a rust-inhibiting machine by paying $53,500 cash on the purchase date and agreed to pay $10,700 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 12%. The machine reported on the balance sheet as of the purchase date is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.) $75,111. $85,600. $139,100. $128,611.
$128,611.
Working:
Value of Machine will be the present value of all payment made. | |||||||||||||
a. | Present Value of quarterly payment | = | Quanrterly Payment x Present Value of annuity of $ 1 | ||||||||||
= | $ 10,700 | x | 7.020 | ||||||||||
= | $ 75,111 | ||||||||||||
b. | Present Value of annuity of $ 1 | = | (1-(1+i)^-n)/i | Where, | |||||||||
= | (1-(1+0.03)^-8)/0.03 | i | 12%/4 | = | 0.03 | ||||||||
= | 7.020 | n | 2*4 | = | 8 | ||||||||
c. | Value of Machine as of Purchase date | = | Cash payment + Present Value of Quarterly payment | ||||||||||
= | $ 53,500 | + | $ 75,111 | ||||||||||
= | $ 1,28,611 | ||||||||||||
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